THE FLOW of legal immigrants has increased steadily since the 1930s, when only 500,000
immigrants were admitted during the entire decade. In the 1950s, 250,000 legal immigrants
entered the United States each year. By the 1990s, nearly 900,000 legal immigrants were
being admitted every year. A large number of people also enter the country illegally,
despite the enactment of the Immigration Reform and Control Act of 1986. Last year the
Border Patrol apprehended 1.1 million illegal aliens, more than two per minute. We have
also witnessed a radical change in the national-origin mix of immigrants. Over two-thirds
of immigrants during the 1950s originated in Europe or Canada. By the 1980s, only about 12
per cent originated in Europe or Canada, as against 37 per cent who originated in Asia and
almost 50 per cent who originated in Latin America.

In view of these historic changes, it is not surprising that immigration has resurfaced
as a pivotal issue. The debate has blurred the traditional lines between the Left and the
Right, leading to odd political alliances: Bill Bennett siding with Fidel Castro and the
California Teachers Association in proclaiming the evils of Proposition 187, Pat Buchanan
siding with environmentalist groups to argue that the flow of legal immigrants must be
reduced.

For the most part, the immigration debate focuses on economic issues. The stakes are
high, and so it is not surprising that the participants use facts, factoids, and outright
distortions to champion their point of view. For instance, depending on whose numbers we
believe, immigrants either pay $27 billion more in taxes than they take out of the welfare
system or take out $42 billion more than they pay. A number of myths permeate the field.
Before we can engage in a serious debate, it is worth contemplating a simple question:
What do we know about the economic impact of immigrants on the United States?

Myth: By historical standards, immigration today is not all that high.

In 1910, 14 per cent of the American population was foreign-born; by 1990, only 8 per
cent was. This trend causes it some observers to argue that immigration fears are blown
out of proportion because, by historical standards, immigrants now make up a small
proportion of the population. Yet by several measures immigration today is at or near
record levels. Between 1901 and 1910, at the height of the Great Migration, 8.8 million
legal immigrants entered the United States. If present trends continue, as many as 10
million legal immigrants, and perhaps another 3 million illegals, will have entered the
country in the 1990s. The United States, therefore, will probably have admitted more
immigrants in this decade than in any other decade in its history.

Moreover, because of the decline in the number of children borne by American women,
immigration now accounts for nearly 40 per cent of the growth in population, compared to
about 50 per cent at the beginning of the century. At least one of every three new workers
who enters the U.S. labor market during the 1990s will be an immigrant. By this yardstick,
immigrants play a crucial role in determining demographic and economic trends in the
United States.

Myth: Immigrants do well in the labor market.

If the typical new immigrant were a highly skilled worker, we would be engaged in a
very different discussion over immigration policy. Imagine the nature of the debate about
Proposition 187 if the flow of illegal aliens was composed mainly of teachers, academics,
and journalists. The country's intellectual elite would probably be manning the barricades
to prevent the illegal entry of competing workers.

Most of the immigrants now entering the United States, however, are less skilled
workers who have little hope of reaching economic parity with native workers during their
lifetimes. Recent immigrants are not as skilled, in comparison to the native-born
population, as earlier waves.

The typical immigrant who had just arrived in the U.S. in 1970 had 11.1 years of
schooling, compared to 11.5 years for the typical native worker at that time. By 1990, the
typical new arrival had 11.9 years of schooling, compared to 13.2 years for natives. In
view of the widening gap in educational attainment, it is not surprising that the wage
differential between immigrants and natives rose dramatically. The most recent arrivals
enumerated in the 1970 census earned 16.6 per cent less than natives. By 1990, the wage
disadvantage was 31.7 per cent.

The poor economic performance of recent immigrants at the time of entry would not be a
cause for concern if the economic disadvantage diminished over time, as immigrants
assimilated. The available evidence, however, suggests that the gap will not narrow
substantially during the immigrants' working lives. The process of economic assimilation
takes place mainly in the first two decades after arrival and narrows the wage gap by
about 10 percentage points. This rate of assimilation allowed earlier immigrants, for whom
the initial gap was less than 20 per cent, to almost catch up with natives, but it is not
sufficient to permit recent immigrants, for whom the gap starts at more than 30 per cent,
to reach economic parity.

Myth: Immigrants use welfare less than natives do.

Less skilled workers, whether immigrants or natives, are more likely to qualify for and
participate in welfare programs. There is little doubt that immigrant use of welfare
programs is on the rise. In 1970, immigrants were slightly less likely to receive cash
benefits (such as Aid to Families with Dependent Children and Supplemental Security
Income) than natives. In 1970, 5.5 per cent of newly arrived immigrant households received
welfare, compared to 6 per cent of native households. By 1990, 8.3 per cent of newly
arrived immigrant households received public assistance, compared to 7.4 per cent of
native households.

Moreover, the welfare-participation rate of a given immigrant wave increases over time.
The wave that arrived between 1965 and 1969 had a welfare participation rate of 5.5 per
cent in 1970. By 1990, the participation rate of this cohort had risen to 9.8 per cent. It
seems that assimilation involves not only learning about labor-market opportunities but
also learning about the income opportunities provided by the welfare state.

The dollar benefits received by immigrant households that are on welfare have also
increased rapidly. The typical native household on welfare received roughly $4,000 in cash
benefits each year (in 1989 dollars) throughout the 1970-1990 period. In contrast, the
typical immigrant household on welfare received about $3,800 in 1970 and about $5,400 in
1990.

As a result of the increasing participation of immigrants in welfare programs and the
larger benefits they are collecting, immigrants now receive a disproportionate share of
cash benefits. In 1970, 6.8 per cent of U.S. households were headed by an immigrant, and
these immigrant households received 6.7 per cent of all cash benefits, so that immigrants
were slightly under-represented in the distribution of these welfare benefits. By 1990,
the situation had changed drastically: 8.4 per cent of households were headed by an
immigrant, and these households received 13.1 per cent of all cash benefits. Put
differently, the cash benefits received by immigrant households in 1990 were 56 per cent
higher than they would have been if immigrants had used the welfare system to the same
extent as natives.

By contrast, immigrants do not receive a disproportionately high share of non-welfare
income. In 1970, they received approximately 6.3 per cent of all non-welfare income,
slightly less than their proportion of the population. By 1990, they received 8.3 per cent
of all non-welfare income, about the same as their proportion of the population. Because
immigrants do not get a disproportionately high share of income, they also do not pay a
disproportionately high share of taxes.

Myth: Immigrants pay their way in the welfare state.

A widely publicized 1994 study by the Urban Institute concluded that immigrants pay
over $27 billion more in taxes than it costs to provide them with schooling and welfare
services. On the other hand, Donald Huddle (in a study conducted for the Carrying Capacity
Network, an anti-population-growth group) concluded that the net costs of immigration
exceeded $40 billion. These accounting exercises inevitably incorporate many hidden and
questionable assumptions.

To illustrate, let's conduct a simple, back-of-the-envelope calculation of the costs
and benefits of immigration. As noted above, the 1990 census indicated that immigrants
received about 13.1 per cent of all cash benefits distributed in the United States. At
that time, roughly $181.3 billion was spent on all means-tested entitlement programs
(including Food Stamps, Medicaid, etc.). If we assume that immigrants received 13.1 per
cent of these expenditures, they accounted for $23.8 billion.

How much do immigrants pay in taxes? According to the census, the total non-welfare
income of immigrant households was $284.7 billion. If the total tax rate (including
federal, state, and local taxes) was 30 per cent, immigrant households paid about $85.4
billion in taxes. The calculation thus indicates that immigrants pay more in taxes ($85.4
billion) than they take out of the welfare system ($23.8 billion).

Changing the Assumptions

BUT this comparison assumes that immigrant taxes are used only to fund their use of
entitlement programs. One can justify this assumption by arguing that all other government
programs provide pure "public goods," so that spending on these programs is the
same regardless of immigration. Immigrants, however, increase the congestion of amenities
provided by government (e.g., parks, freeways, schools, jails). The cost of providing
these public goods to the immigrant population is not zero.

Obviously, different assumptions about the cost of providing these goods will lead to
different conclusions about whether immigrants pay their way in the welfare state. If the
cost is zero, immigrants make a substantial contribution to the treasury. If, on the other
hand, the average cost of providing services to immigrants equals the average cost of
providing services to natives, immigrants should be charged for the various government
programs as if they were natives. In 1990, 91.1 per cent of taxes were used to pay for
programs other than means-tested entitlement programs. If we charge immigrants 91.1 per
cent of their tax payments for using these other programs, then only 8.9 per cent of
immigrants' taxes are left to fund their use of means-tested entitlement programs.
Immigrants would then contribute only $7.6 billion (or 8.9 per cent of the $85.4 billion
they pay) to the funding of these programs. The tax burden resulting from immigration
would be on the order of $16 billion.

The Urban Institute's claim that immigrants create a $27-billion "net
surplus" for the United States assumes that immigrants do not increase the cost of
any programs other than the ones included in the Institute's calculations (mainly welfare
and education). Because we do not know by how much immigrants raise the cost of freeways,
national parks, and even defense, accounting exercises that claim to estimate the fiscal
impact of immigration should be viewed suspiciously.

Furthermore, the typical accounting exercise does not consider the long-run impact of
immigration on government expenditures. For instance, some argue that immigrants make a
net contribution to the Social Security system because they are paying into the system now
and are not collecting benefits. But immigrants are on average about 30 years old when
they enter the United States. As a result, many immigrants pay into the Social Security
system for a much shorter time than natives, yet collect roughly the same benefits. In
other words, a sizable bill will come due some day, and our children (as well as the
immigrants' children) will have to pay it.

The accounting exercises also take a myopic view of expenditures on education. In
California alone, it is estimated that roughly $1.7 billion was spent on educating the
children of illegal aliens in 1993. These costs, however, must be weighed against the
benefits of having a more educated work force later on. Moreover, immigrants who enter the
United States after they have completed their education import "free" human
capital, from which substantial benefits might accrue.

Myth: Refugees and illegal aliens are the source of the immigration problem.

There are huge differences in educational attainment, earnings, and welfare
propensities among groups of different national origins. In 1990, immigrants from France
and Germany earned about 25 per cent more than natives, those from China and Peru earned
21 per cent less than natives, and those from El Salvador and Mexico earned 40 per cent
less than natives. Similarly, only about 2 to 4 per cent of the households originating in
South Africa, Taiwan, or the United Kingdom received public assistance, as opposed to 11
to 12 per cent of the households originating in Ecuador or Mexico and nearly 50 per cent
of the households originating in Laos or Cambodia. In view of these differences, it is
tempting to blame a relatively small number of groups for the disturbing trends in the
economic impact of immigration.

The Urban Institute's study offers a typical example of this blame game. The data
presented by the Institute's researchers indicate that 41 per cent of recent immigrants
were high-school dropouts, compared to only 23 per cent of natives. Nevertheless, they
conclude that the "low educational attainment or poor 'quality' of recent immigrants
... is directly attributable to illegal immigrants and refugees, not to legal
immigrants."

The researchers reach this conclusion by manipulating the data. In defining "legal
immigrants," the study omits refugees, presumably because they are admitted under a
different set of rules. The researchers also want to omit illegal aliens. The census,
however, does not provide any information on who is legal and who is not, so they simply
omit immigrants from Mexico (and several Central American countries). The rationale is
that a large number of illegal aliens are Mexicans. It is also true, however, that a very
large number of legal immigrants are Mexicans. In fact, Mexicans are the largest group in
the legal immigrant flow, accounting for almost a quarter of the immigrants admitted
legally in the 1980s. By excluding Mexicans from the calculation, the Urban Institute can
conclude that "legal" (read: non-Mexican, non-refugee) immigrants don't look
quite so bad. In other words, there is no immigration problem once we get rid of the
"problem" immigrants.

The blame game also shows up in the Manhattan Institute's recent "Index of Leading
Immigration Indicators," which dismisses the high propensity of immigrants to receive
public assistance by noting that "immigrants are more likely than natives to receive
welfare, but that is due mainly to very high rates of welfare use among refugees and the
elderly." How we define both the native and the immigrant populations influences what
we conclude about the economic and social benefits from immigration. The bar graph reports
the welfare-participation rates for various groups of native and immigrant households in
1990. Over all, immigrants are more likely to be on welfare than natives. If one looks
only at the non-refugee population, however, the welfare gap between immigrants and
natives essentially disappears. If we also omit the elderly, we find that non-refugee,
non-Mexican immigrants are less likely to be on welfare than natives.

But before we conclude that we have found the source of the immigration problem (that
is, the refugees, the presumed illegals, and the elderly), there are two points that are
worth remembering. Just as we can minimize the immigration problem by getting rid of the
problem immigrants, we can play a similar game with the native population. As the graph
also illustrates, even highly "select" groups of immigrants are more likely to
be on welfare than non-Hispanic white natives. More important, even if we were to find
that these select groups of legal immigrants have the same propensity to be on welfare as
a similarly select group of natives, we would still have a problem.

After all, shouldn't our immigration policy strive to admit workers who do more than
just replicate the social and economic problems of our native population? Yet, instead of
considering the economic potential of applicants when handing out entry visas, our current
policy awards entry visas mainly to applicants who have relatives already residing here.

Myth: Immigrants do not hurt the earnings of native workers.

Another reason to be concerned about the impact of unskilled immigrants is that they
probably reduce the economic opportunities of unskilled natives. Economists have typically
estimated the impact of immigration on native earnings by comparing the earnings of
natives who reside in "immigrant" cities (such as Los Angeles and San Diego)
with the earnings of natives who reside in cities where few immigrants live (such as
Atlanta and Pittsburgh). These cross-city comparisons suggest that the average native wage
is lower, but only slightly, in labor markets where immigrants tend to cluster. If one
city has 10 per cent more immigrants than another, the native wage in the city with more
immigrants is only about 0.2 per cent lower.

But this correlation does not necessarily indicate that immigrants have a negligible
impact on native workers. Suppose immigration into Los Angeles lowers the earnings of
natives in L.A. substantially. Native workers are not likely to stand idly by and watch
their economic opportunities evaporate. Many will move out of the Los Angeles basin into
other cities, and people who were considering moving to L.A. will now move elsewhere
instead. As natives respond to immigration by voting with their feet (creating "the
new white flight"), the adverse impact of immigration on the L.A. labor market is
transmitted to the entire economy. In the end, all competing native workers are worse off
from immigration, not simply those residing in cities where immigrants cluster.

There is some evidence that this "macro" effect of immigration on native
earning opportunities is significant. The 1980s witnessed a substantial increase in the
wage gap between workers who did not have a high-school diploma and workers with more
education. The decade also witnessed the entry of large numbers of less skilled
immigrants. Recent evidence suggests that perhaps a third of the 10-percentage-point
decline in the relative wage of high-school dropouts between 1980 and 1988 can be
attributed to the flow of less skilled immigrants.

Myth: Americans gain a lot from immigration.

A number of observers claim that immigration is very beneficial for natives. It is
typically argued that immigrants spur economic growth, lower prices for American
consumers, and increase the demand for goods and services produced by native-owned firms.
It is telling that these claims are seldom, if ever, backed up by numbers. It is simply
taken as a tenet of faith that Americans gain from immigration and that these benefits are
substantial.

The belief that immigration spurs economic growth arises from the fact that there is a
positive correlation between the number of immigrants in a particular city and the rate of
economic growth in that city. This correlation is interpreted to mean that when immigrants
enter a locality, economic growth follows. This interpretation, however, assumes that
immigrants are not very smart. Why would anyone migrate to a city with a stagnant economy?
Immigrants (like natives) look at economic conditions before deciding where to settle. The
positive correlation between economic growth and immigration, therefore, might simply
indicate that immigrants are smart in choosing where to live.

Redistribution of Wealth

IN ANY case, the numbers do suggest that natives, as a group, gain from immigration.
Immigration, however, does more than just raise the national income that accrues to
natives; it also induces a substantial redistribution of wealth. In particular, wealth is
redistributed from native workers who compete with immigrant workers to those who employ
immigrants and use immigrants' services. I have recently estimated that native workers, on
the whole, lose about $133 billion a year, or 1.9 per cent of GDP in a $7-trillion
economy, mainly because immigrants drive down the wages of competing workers. At the same
time, employers and other users of immigrants' services, such as owners of large farms and
the Zoe Bairds of the world, gain substantially. These gains are on the order of $140
billion, or 2 per cent of GDP. The net gain, therefore, is only on the order of 0.1 per
cent of GDP, or about $7 billion. But although the net gain is small, some Americans gain
very much. This simple fact explains why a small, well-financed, and powerful segment of
the population finds it difficult to understand why most other Americans are so concerned
about immigration.

Myth: Immigrants are more likely to be entrepreneurs, and these entrepreneurs are very
successful.

It is often claimed that immigrants create more jobs than they take because a large
number of them become successful entrepreneurs. Asserting that "immigrant companies
have generated hundreds of thousands of good jobs in California," Ron Unz uses
Silicon Valley and the computer industry to illustrate how immigrant entrepreneurship
benefits our country ["Value Added," NR, November 7].

Sentimentality aside, it simply is not true that the entrepreneurial spirit burns more
brightly among immigrants than among natives. The Census Bureau's statistics indicate that
only 6.8 per cent of immigrant workers in 1990 were self-employed, compared to 7 per cent
of native workers. Although entrepreneurship is an important economic activity among some
immigrant groups (15 per cent of Greek and 18 per cent of Korean immigrants were
self-employed), it does not characterize the bulk of the immigrant population. Only 6 per
cent of Vietnamese immigrants, 5 per cent of Mexican immigrants, and 3 per cent of
Filipino immigrants were self-employed.

We should not use these statistics to denigrate the significant entrepreneurial
contribution made by some immigrants. For instance, it might be that even though most
immigrants do not become entrepreneurs, those who do are wildly successful and contribute
significantly to the American economy. The proponents of this argument typically do not
back up their assertion with data (since none exist) but instead rely on anecdotes.
However, for every Philippe Kahn (an illegal alien who founded Borland International),
there is a Bill Gates. Moreover, on average, the self-employed do not do very well in the
labor market, regardless of whether they are immigrants or natives. Small firms have very
high failure rates, and self-employed workers often earn less than wage-and-salary workers
who have comparable skills.

Myth: The melting pot works fast.

In 1990, 10 per cent of the people living in America were "second generation"
(that is, were born here but had at least one parent born elsewhere). By 2050, if current
trends continue, the share of second-generation Americans will increase to about 14 per
cent, and an additional 9 per cent of the population will be the grandchildren of current
immigrants. The impact of immigration depends not only on how immigrants perform in the
U.S. economy but also on the economic performance of their offspring. Despite this, the
current debate almost completely ignores the implications of immigration policy for the
economic and social well-being of this country in the twenty-first century.

We ignore these implications at our peril. The experience of the children of earlier
immigrant waves suggests that, although second-generation workers earn more than their
immigrant parents, on average the intergenerational improvement is not that large. At
best, the children of immigrants earn about 10 per cent more than their parents. Because
recent immigrant waves are relatively unskilled and earn about 20 per cent less than
natives throughout much of their lives, this pattern would imply that second-generation
workers in the next century may also have a substantial economic disadvantage.

There is also evidence that the huge wage differentials among different national-origin
groups in a given generation are transmitted to their children. For example, in 1940
immigrants from the Philippines earned about 41 per cent less than immigrants from Italy.
In 1970, second-generation Filipino-Americans earned 17 per cent less than
second-generation Italian-Americans. Today's skill differentials among foreign-born groups
become tomorrow's skill differentials among American-born ethnic groups. It might take up
to four generations for the ethnic differences in economic status introduced by current
immigration to disappear.

The Need for Action

WE DO not yet know how the welfare state and the multi-cultural agenda favored by many
segments of the intellectual elite will alter the speed at which the melting pot does its
job. A prudent observer can only conclude that these misguided policies will retard the
forging of Americans. This factor, combined with the relatively low skills of recent
immigrant waves and their high rates of welfare recipiency, might mean we are already
witnessing the creation of a large new underclass. As other countries have learned at a
very high cost, ethnicity matters, and it matters for a long time.

The debate over immigration policy is much too important to be guided by ignorance or
by a distortion of the facts. The available evidence suggests reasons for conservatives,
and even for open-border libertarians, to be worried about immigration. Perhaps if we can
agree on the essence of the problem, we can proceed to a more rational discussion of the
policy solutions.

Time is running out, however. The failure of the political system to address the
problems caused by illegal aliens led to the enactment of Proposition 187, a proposition
that many of us (even if we believe that illegal aliens create problems) view as
ill-advised and ill-crafted. The longer the politicians bury their heads in the sand, the
more likely that the Proposition 187 movement will spawn a "Proposition 188" to
control legal immigration.

This resolution to the debate would be unfortunate, because it would probably lead to
far more draconian measures than are justified. If we wish to pursue a more rational
policy that nourishes some forms of legal immigration, that upholds the traditions that
made America an "immigrant nation," and that takes advantage of the many
economic, social, and cultural contributions that a well-chosen immigrant flow can confer
upon the U.S., we will have to act soon and decisively.

Mr. Borjas is a professor of economics at the University of California, San
Diego, and the author of Labor Economics, forthcoming from McGraw-Hill. His
article "The Economics of Immigration," in the December 1994 issue of the Journal
of Economic Literature, offers a detailed summary of evidence from the academic
literature.